The New Frontier of Managed Accounts: A Fund Strategist Portfolios Primer
A series of financial crises over the last dozen years has forced many investors to reassess their investment choices and their tolerance for risk. There are new factors to consider: Financial markets are more globally connected than ever before. Product innovation has become complex, and so have portfolio solutions and asset allocation decisions. Compliance and regulatory mandates for advisors have increased dramatically, leading to a lot of confusing conversations about fine print.
So how can advisors meet investors’ needs, stay on top of emerging best practices—and still have time to select great investment products in a rapidly changing, globally connected complex and even chaotic marketplace? One way is to outsource to a new type of investment product that manages both product selection and asset allocation, called a Fund Strategist Portfolio (“FSP”).
For those advisors that do not have the time or inclination to do their own asset allocation and manager research, monitor underlying investments and rebalance multiple accounts, FSPs can provide an effective solution—which is why they have quickly become an integral component of many financial advisory practices. As advisors seek to cushion the potential volatility of long-term strategic portfolios – in an effort to prevent the kind of panic that possessed investors in the wake of the 2008 market meltdown – they have sought to expand their toolkit, incorporating more dynamic strategies that adjust portfolio allocations in an effort to protect or even profit from market swings. For instance, advisors are starting to incorporate liquid alternatives, sector rotation, tactical “go anywhere” managers and other investment styles. Today, with the help of FSPs, advisors can embrace a flexible framework for portfolio construction that incorporates long-term strategic, core-satellite, and more tactical investment solutions, using a single FSP, a combination of FSPs, or a combination of open architecture FSPs that they can populate with their own chosen managers.
Past performance is not indicative of future results. The opinions expressed herein reflect our judgment as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. Information obtained from third party resources are believed to be reliable but not guaranteed. Any mention of a specific security is for illustrative purposes only and is not intended as a recommendation or advice regarding the specific security mentioned.
Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses. Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns.
The information, analysis, guidance and opinions expressed herein are for general and educational purposes only and are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. Envestnet makes no representation regarding the accuracy or completeness of the information provided. Information obtained from third party resources are believed to be reliable but not guaranteed. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Past performance is not indicative of future results.
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